Hospitals, already feeling pinch, concerned about Medicaid

Hospitals were already suffering with reimbursements for the two government programs less than the cost of providing the care. Now the hospitals have an additional cloud on the horizon with concerns about “hit men” auditors from a new Medicare program who have an incentive to disallow claims because that is how they are paid.

There is concern that hospitals, particularly in rural areas, are in real trouble because of inadequate Medicare and Medicaid reimbursement for expenses. The problems are serious enough that they are blamed for a number of hospitals across the country filing for bankruptcy. There are concerns additional bankruptcies or measures such as increased local taxes to fund shortfalls could be on the way because of changes in Medicare reimbursement set to take effect later in the year.

Shortfall tough in rural areas

Studies show that in 2006, Medicare reimbursed hospitals at a rate that was 4.8% less than the cost of providing the care. That shortfall is particularly acute for hospitals in rural Mississippi where as much at 84% of the patients are on Medicare.

“There are hospitals in Mississippi that are almost completely dependent on Medicare for their survival,” said Michael Bailey, chief financial officer for the Mississippi Hospital Association. “It varies from hospital to hospital, area to area, but in general over the past couple of years the cost reimbursed by Medicare is actually less than the cost of treating the patients.

Obviously those costs have to be passed on to someone else. Bailey said that is why one sometimes hears stories about $10 aspirins.

“The reason things cost so much for those of us who can pay is that the two government programs reimburse less than cost,” Bailey said. “Then there is a segment of population across the state, about 12%, who don’t pay anything. That is care the hospitals provide that is uncompensated.”

Getting worse

Bailey said the crunch is getting worse each year for several reasons. As the economy worsens, people are less able to pay. In the past five or six years, the federal government has done things to cut reimbursements to hospitals for Medicare.

Bailey was in Washington, D.C., when interviewed for this article. He was gathering information on a Medicare program planned in 2009 called the Recovery Audit Contractors Program (RACP).

“It is actually already rolled out in several pilot states such as Florida, California and New York,” Bailey said. “What the RACP program is, the Center for Medical Services (CMS) has hired contractors who are basically hit men. What they do is go out and audit hospital claims for Medicare to make sure that Medicare did not overpay for the claim. I use the term overpay very loosely. I don’t mean more than it costs the hospital, but more than Medicare wants to pay. The will start doing their work in Mississippi in 2009 and will subsequently take even more money away from hospitals. The program has the potential for increasing costs in hospitals because someone in the hospital will have to be a contact person for RACP, and will have to compile, pull and copy records that the RACP will want. Not only is it going to take money away from hospitals, but will cost more to provide the services.

“There is no good news coming out of the pilot state programs. If you look at it realistically, the way these companies work, the more money they can find in ‘overpayments to hospitals,’ the more they make. Their incentive is to disallow as many payments as they possibly can.”

Keeping the doors open

Fifty hospitals in Mississippi, 43%, are currently operating at a zero or negative bottom line. Basically hospitals with a lot of Medicaid and Medicare patients operate on cash flow. That is how they keep their doors open. In general, the debt increases each year.

“Obviously it tells a story when have almost half of the hospitals in Mississippi operating in the red,” Bailey said. “There is only so much of that a hospital can do without taking action such as cutting services and laying off people. It is sort of a hidden tax. In Mississippi, the push in the past several years is to cut people off the Medicaid rolls. That is a narrow view. Just because you take recipients Medicaid card away from them doesn’t stop them from accessing medical care. It takes them out of doctor’s office and sends them to the emergency room, which costs five to six times more than going to a doctor’s office. What have seen in last few three years is increase in uncompensated care. So in Mississippi as Medicaid rolls go down, uncompensated care goes up. The cost of healthcare has been transferred and pushed down to the local levels.”

Another negative impact of that, Bailey said, is that at least when someone is on the Medicaid rolls, Mississippi only have to pay a 26% match as 74% of the funding comes from the federal government. With uncompensated care, 100% of those costs are born by the State of Mississippi.

Bailey said when people are pushed into uncompensated care, there is increased bad debt of local hospitals, increased private insurance rates, increased costs to those who pay for their healthcare, or potentially for public hospitals to increase local taxes to support their hospitals.

Business impact

There is a significant impact to Mississippi businesses as uncompensated care is one reason the cost of healthcare and healthcare insurance has gone up so much in recent years.

“Again, those of us who can pay for our health care costs have to shoulder the burden for the Medicare and Medicaid program and those who can’t pay for their health care costs,” Bailey said.

There are also major concerns about a projected $86-million deficit in Medicaid in Mississippi for the present fiscal year, and an additional projected need of $168 million over current appropriations for fiscal year 2009.

Sam W. Cameron, president/CEO, Mississippi Hospital Association, said Gov. Haley Barbour has indicated he would again attempt to pass legislation authorizing a tax on the sick people of Mississippi through a gross revenue assessment on hospitals. “Because of this potential negative effect on our facilities and the patients they serve, the Mississippi Hospital Association will, again, oppose this ill-conceived tax,” Cameron said. “Another statement made by the governor would seem to indicate that he will be attempting to cut the amount and duration of services currently mandated in the Medicaid statutes. Considering the fact that, based on Medicaid’s own estimates, hospitals are already paid approximately 13% less than their allowable costs to treat Medicaid patients, there is no legitimate financial bases for cutting reimbursement even further.”

Cameron said currently mandated bed taxes, growing revenue assessments and inter-governmental transfers have hospitals paying more than $140 million annually to the Division of Medicaid.

Taxing situation

“Contrary to statements that you have heard regarding ‘not raising anybody’s taxes,’ in the past four years, the fact is bed taxes on hospitals have more than doubled — going from $1.50 per bed, per day, to $3.25 per bed, per day,” he said. For those healthcare systems and facilities that have associated nursing homes, they have seen their bed tax more than triple — going from $3 per bed, per day, to $9.27 per bed, per day.”

The Division of Medicaid’s leadership has said there are only two options for funding their deficit: 1) cut services, or 2) tax hospitals. MHA is advocating other options that should be explored.

Gov. Barbour said the biggest budget challenge the state faces is Medicaid.

“In this past four years, we’ve made significant progress in saving Medicaid for the nearly 600,000 Mississippians who rely on it,” Barbour said. “We have enacted reforms because we know it is wrong for a family to work hard at two or three jobs, to raise their kids and pay for their healthcare, and then have to turn around and pay extra taxes so others who are able to work and take care of themselves choose not to but instead get free healthcare at taxpayers’ expense. That’s not right.”

Under Barbour’s Administration, the Division of Medicaid checks people’s eligibility face-to-face, and the Medicaid rolls have decreased to fewer than 600,000. He said this drop is what you should expect when the number of people employed has increased by more than 50,000.

“We’ve changed our prescription drug program to better utilize generic drugs,” Barbour said. “That, along with Medicare Part D, is saving taxpayers tens of millions of dollars on pharmaceuticals with no negative effect on beneficiary health. But even with these common-sense, successful savings efforts, the Medicaid budget faces a large shortfall. This is primarily because the federal government has forced us to stop using certain funds to cover the state Medicaid match requirement.”

Given the constraints of state laws governing Medicaid and changing federal rules, Medicaid financing is a difficult challenge. Barbour said he is willing to consider other viable proposals and looks forward to working with the Legislature on these issues.

Andy Woodard, chief finance officer at Forrest General Hospital in Hattiesburg, said the hospital is concerned with any proposed changes to the funding levels of both Medicare and Medicare as these programs comprise over approximately 55% of their revenues.

“Mississippi Hospital Association and American Hospital Association did a great job lobbying on behalf of providers to reduce some of the proposed cuts by President Bush to the Medicare program that totaled in excess of $225 million over a five-year period for the State of Mississippi,” Woodard said. “Due to the high volume of Medicare patients treated at Forrest General Hospital, our portion of the proposed cuts was estimated at approximately $18 million for the same period. With inpatient margins for 2006 already at a negative 1.1%, this would have made it very difficult to balance our budgets without extreme measures.”

Forrest General is requesting that benefits not be cut because every dollar of benefit cut, the state looses approximately $3 of federal funding.

“This would equate to approximately $504 million that the State of Mississippi will not have coming into our economy and sustaining jobs,” Woodard said. “This does not account for the retroactive adjustments that providers are faced with due to recent changes in the Medicaid outpatient program. Historically, the Medicaid program has relied on other sources of funding such as the Hospital DSH program and one-time Hurricane Katrina special relief as opposed to general state-appropriated funds. Since these funding mechanisms are no-longer available to the state, this revealed the historical inadequacy of funding as oppose to significant growth in the program itself.”

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